How to grow a small trading account
Research says that 90 per cent of traders fail in stock market
Research says that 90 per cent of traders fail in stock market. To be honest maybe even 95 per cent of traders fail. Sometimes, we assume that the five to 10 per cent people in the success category are profitable because of some magic indicator or strategy.
But in reality, there is no Holy Grail magic or sure shot strategy. Any strategy is subjected to fail at any time.
We can summarise three reasons for successful trading the first being a good strategy. This strategy works most of the time, but not at all times. One needs to back test the strategy for accuracy. Second most important reason for success in trading is trading psychology.
Good command on risk management and managerial skills are the secrets of a successful trader. Risk management is known as Holy Grail of trading. By maintaining a proper risk-reward ratio, one can become a profitable trader. How much you can earn in stock market can't be predetermined, but how much you may lose can be fixed.
Risk management is associated with mathematics. And mathematics is not a probability, but it is certainty. Risk management always works. Profits should always be bigger than losses. One should always limit your loss to the extent of one per cent of the invested capital.
Follow the rule of not losing more than one per cent of a capital in a single trade. We need to have a disciplined approach in maintaining stop loss. The process, which is followed religiously, will definitely give good returns. For minimal losses position, sizing is very important.
Whenever you take a trade, you expect to be in profits, but this can be wrong at times because any strategy can fail, but risk management will help protect your capital. Never trade with a gambling mindset.
Supply and demand or support and resistance are the strategy which works most of the time because trading is all about buyers and seller. Price action trading gives good results. Trading in one particular instrument like index makes one more familiar with understanding the behaviour of price movement.
Slowly trading account capital needs to be increased. You can start trading in index with Rs1 lakh. Restrict to two trades per day. Risk capital loss of Rs1,000 only per trade.
If risk-reward ratio is maintained strictly, then one can reap consistent profits. Remember loss minimised is capital saved. Maintain a trading journal to assess and hone your trading skills.
(The author is a homemaker who dabbles in stock market investments in free time)